More relief is on the way for underwater borrowers, assuming lenders agree to take part in the voluntary program.
On September 7, the FHA will begin offering FHA loans to certain underwater non-FHA borrowers who are current on their existing mortgages via the FHA Short Refinance program, originally unveiled back in March.
In order to take advantage of the FHA’s “short refi,” homeowners must qualify for the new loan under standard FHA underwriting requirements, and have a credit score of 500 or higher.
The property must be the homeowner’s primary residence (1-4 units), and the borrower’s existing first mortgage holder must agree to write off at least 10 percent of their unpaid principal balance, bringing the borrower’s combined loan-to-value ratio (CLTV) to no more than 115 percent.
Additionally, the existing loan must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
The Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens – though second mortgages can be re-subordinated so long as the CLTV stays below 115 percent.
“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens, in a state